VIX Trading Strategies in December

We’ve tested 21 simple strategies for trading VIX ETPs on this blog (separate and unrelated to our own strategy). And while I can’t speak for all traders, based on all of my readings both academic and in the blogosphere, the strategies we’ve tested are broadly representative of how the vast majority of traders are timing these products.

All but but a handful of these strategies got walloped in December following significant losses in inverse VIX ETPs like XIV and ZIV. Below I’ve shown the December and 2014 results of the 21 strategies we’ve blogged about previously, trading short-term VIX ETPs. Read about test assumptions or get help following these strategies.



Stategies included in this report: First vs Second Month Futures, VIX vs Front Month Futures, VIX vs 1-Month Constant Maturity, VIX vs VXV Indices, V&M’s VIX:VXV Ratio, TM’s RSI(2)DFTB’s StDev Strategy, DFTB’s Spread Strategy, DDN’s Momentum Rotation, DDN’s VRP Strategy, 10/100-Day MA Crossovers, TWP’s Quadratic Fit, NAS’s VIX Futures Momentum, S&P 500 50/200-Day Crossovers, Brute Force Optimized VRP, LI’s Bollinger Band Strategy, LI’s SMA Crossovers, Evolution Capital Strategy, TTO’s VRP Strategy, MS’s Mean-Reversion, Macro Investor Strategy

The Revised TM RSI(2) strategy, a short-term mean-reversion model that spends very little time in the market, was the top performer for the month and the most consistent performer of the year.

The standouts for the year in terms of terminal return were clearly the “VRP” strategies tested here and here with YTD returns of 34% and 68% respectively. As I’ve cautioned many times however, when tracking as many different strategies as we track, trading vehicles as volatile as VIX ETPs, something is bound to appear to have the hot hand at any given moment. Whether or not this is a result of real predictive ability or just the luck of the draw is open to interpretation, but what I do know (and I’ve shown quantitatively here and here) is that chasing the most recent top performer is generally a bad idea.

The strategies that are leading the pack today very often find themselves at the back of the pack tomorrow. These VRP strategies are a good example of that. Despite their strong performance this year, both trailed buy & hold badly for all of 2012 and 2013. That’s why I always advocate for a more holistic approach that considers many of the different concepts we’ve discussed on this blog rather than marrying any one single idea.

XIV and VXX are of course not the only show in town. Below I’ve rerun the same tests, this time applying each strategy to the less popular (or is it “underutilized”?) mid-term VIX ETPs ZIV and VXZ (click to zoom).

20150104.03     20150104.04

Note that when any of these strategies signal new trades, we include an alert on the daily report sent to subscribers. This is completely unrelated to our own strategy; it just serves to add a little color to our daily report and allows subscribers to see what other quantitative strategies are saying about the market.

Good Trading,
Volatility Made Simple

Posted in Real-Time Analysis.